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BarCap Continues Push Into Alternative Weighting

Written by Staff

January 27, 2012 13:22 (CET)

Barclays Capital has expanded its range of fiscal strength weighted indices to add covered bonds to the list of fixed income products covered by the alternative weighting methodology.

Today’s launch of a new suite of Fiscal Strength Weighted Covered Bond Indices follows the establishment of the Barclays Capital Fiscal Strength Weighted Bond Index family back in August.

The extension of the range, which uses fundamental measures of fiscal sustainability to adjust country weights within existing covered bond benchmarks, has been driven by the rise in popularity of the asset class and a recognition that traditional market capitalisation strategies left investors overexposed to some Eurozone countries.

“The global covered bond market is a growing segment of the fixed income market and an increasing part of the investment choice set for securitised, rates and credit investors,” said Fritz Engelhard, head of covered bond strategy at Barclays Capital. “In the covered bond space, market value weighted indices tend to be rather strongly exposed to Spain and France due to the high historical covered bond issuance activity out of these countries.

“Performance swings in these covered bond markets, given the sovereign crisis, exceeded the risk appetite of typical covered bond investors, and the new fiscal strength weighted alternative achieves a reduction in index weights of the two countries.”

The indices use traditional market value weighting as a base measure, but this value is then adjusted according to a country score, which is determined by assessing fundamental measures of a country’s financial solvency, dependence on external financing and institutional strength.




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